Economics Test 2

question

The percentage change in quantity demanded that results from the percentage change in price is known as the:

answer

price elasticity of demand

question

If the price of textbooks increases by one percent and the demanded falls by one-half percent, then demand for textbook is:

answer

price inelastic

question

The demand for a good is inelastic with respect to price, if the price elasticity of demand is:

answer

is less than one

question

If the consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

answer

elastic

question

When the demand for a good is inelastic, that good is likely to have:

answer

few close substitutes

question

Satellite TV is a close substitute for cable TV. In the 1990's small satellite TV units were developed that made it more practical for individual consumers to subscribe to satellite TV service. This cause the price elasticity of demand for cable TV service to:

answer

become more elastic

question

Small budget items such as soap have ____ price elasticity demand compared to big-ticket items such as flat-screen TVs.

answer

Lower

question

Demand tends to be ____ in the short run than in the long run

answer

more inelastic

question

if the slope of the demand curve is -0.167, price is $8 and quantity demanded is 12 units, then demanded for this good is:

answer

elastic

question

As one moves down along a linear demand curve the demand:

answer

becomes less price elastic

question

If consumers completely cease purchasing a product when its price increases by any amount, demand is classified as:

answer

perfectly elastic

question

Firms that produce goods with many substitutes will find that:

answer

lowering price increases total revenues

question

A rational seller will sell another unit if:

answer

the cost of making the next unit is less than the revenue gained by selling the next unit

question

The primary objective of most private firms is to:

answer

Maximize profit

question

Total revenue minus total explicit and implicit costs defines

answer

profit

question

The long run is defined as

answer

a period in which all factors of production are variable

question

Which of the following factors of production is likely to be fixed in the short run

answer

The location of the firm

question

One reason that variable factors of production tend to show demising returns in the short run is that:

answer

there are more and more workers using a fixed amount of productive resources

question

Average variable cost is defined as

answer

Variable cost divided by output

question

When plotting marginal and average cost curves, the ____ cost curve always crosses the _____ cost curve at its ____.

answer

Marginal; average total; minimum

question

Marginal cost is calculated as:

answer

the change in total costs divided by the change in output

question

Explicit costs:

answer

measure the payments made to the firm's factors of production.

question

An example of an implicit cost is:

answer

the value of a spare bedroom turned into a home office

question

Economic profits are:

answer

equal to total revenue minus both explicit and implicit cost

question

Which of the following would not be included in the calculation of accounting profits?

answer

the salary the owner could have earned working elsewhere

question

If a farm is earning zero economic profits:

answer

the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment

question

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year as a consultant. Chris's opportunity cost of running her own business is ____ which is the ____.

answer

$40,000; implicit cost

question

A profit-maximizing firm will shut down when:

answer

total revenues are less than the cost of variable factors of production

question

Suppose a perfectly competitive firm knows that it is not going to shut down, but it is going to earn a loss. It should pick the output level where:

answer

price equals marginal cost

question

Suppose a firm is collecting $1,700 in total revenues and the total costs of its variable factors of production are $1,900 at it s current level of output . One can predict that the firm will

answer

shut down

question

Acme Dynamite has $2,000 of variable costs and $500 of fixed costs when its output is 250 units. It sells each unit for $25. Profit maximizing output is

answer

$3,750

question

Perfectly competitive firms maximize profit when:

answer

marginal cost equal price

question

A decrease in the price the firm receives for its output will cause the firm to:

answer

reduce output and earn smaller profits or larger losses

question

Generally, ____ motivate firms to enter an industry while ____ motivate firms to exit an industry.

answer

Economic profit; Economic losses

question

Suppose all firms in a perfectly competitive industry are experiencing economic profits. One would expect that, over time, the number of firms will ____ and the market price will _____.

answer

rise; fall

question

In a perfectly competitive industry are experiencing economic losses, then firms will:

answer

exit the industry, until economic profits equal zero

1 of 36

question

The percentage change in quantity demanded that results from the percentage change in price is known as the:

answer

price elasticity of demand

question

If the price of textbooks increases by one percent and the demanded falls by one-half percent, then demand for textbook is:

answer

price inelastic

question

The demand for a good is inelastic with respect to price, if the price elasticity of demand is:

answer

is less than one

question

If the consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

answer

elastic

question

When the demand for a good is inelastic, that good is likely to have:

answer

few close substitutes

question

answer

become more elastic

question

Small budget items such as soap have ____ price elasticity demand compared to big-ticket items such as flat-screen TVs.

answer

Lower

question

Demand tends to be ____ in the short run than in the long run

answer

more inelastic

question

if the slope of the demand curve is -0.167, price is $8 and quantity demanded is 12 units, then demanded for this good is:

answer

elastic

question

As one moves down along a linear demand curve the demand:

answer

becomes less price elastic

question

If consumers completely cease purchasing a product when its price increases by any amount, demand is classified as:

answer

perfectly elastic

question

Firms that produce goods with many substitutes will find that:

answer

lowering price increases total revenues

question

A rational seller will sell another unit if:

answer

the cost of making the next unit is less than the revenue gained by selling the next unit

question

The primary objective of most private firms is to:

answer

Maximize profit

question

Total revenue minus total explicit and implicit costs defines

answer

profit

question

The long run is defined as

answer

a period in which all factors of production are variable

question

Which of the following factors of production is likely to be fixed in the short run

answer

The location of the firm

question

One reason that variable factors of production tend to show demising returns in the short run is that:

answer

there are more and more workers using a fixed amount of productive resources

question

Average variable cost is defined as

answer

Variable cost divided by output

question

When plotting marginal and average cost curves, the ____ cost curve always crosses the _____ cost curve at its ____.

answer

Marginal; average total; minimum

question

Marginal cost is calculated as:

answer

the change in total costs divided by the change in output

question

Explicit costs:

answer

measure the payments made to the firm's factors of production.

question

An example of an implicit cost is:

answer

the value of a spare bedroom turned into a home office

question

Economic profits are:

answer

equal to total revenue minus both explicit and implicit cost

question

Which of the following would not be included in the calculation of accounting profits?

answer

the salary the owner could have earned working elsewhere

question

If a farm is earning zero economic profits:

answer

the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment

question

answer

$40,000; implicit cost

question

A profit-maximizing firm will shut down when:

answer

total revenues are less than the cost of variable factors of production

question

Suppose a perfectly competitive firm knows that it is not going to shut down, but it is going to earn a loss. It should pick the output level where:

answer

price equals marginal cost

question

Suppose a firm is collecting $1,700 in total revenues and the total costs of its variable factors of production are $1,900 at it s current level of output . One can predict that the firm will

answer

shut down

question

Acme Dynamite has $2,000 of variable costs and $500 of fixed costs when its output is 250 units. It sells each unit for $25. Profit maximizing output is

answer

$3,750

question

Perfectly competitive firms maximize profit when:

answer

marginal cost equal price

question

A decrease in the price the firm receives for its output will cause the firm to:

answer

reduce output and earn smaller profits or larger losses

question

Generally, ____ motivate firms to enter an industry while ____ motivate firms to exit an industry.

answer

Economic profit; Economic losses

question

Suppose all firms in a perfectly competitive industry are experiencing economic profits. One would expect that, over time, the number of firms will ____ and the market price will _____.

answer

rise; fall

question

In a perfectly competitive industry are experiencing economic losses, then firms will:

answer

exit the industry, until economic profits equal zero

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Economics Test 2

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